In a recent report Standard & Poor's (S&P) has identified the Philippines as the most suitable potential market for financial future flow transactions among the Asian emerging markets.

S&P says that over the past two years banks have expressed interest in securitizing workers' remittances and export receipts.

The number of expatriate Philippine citizens sending money home is increasing, partly due to the increase in exports of electronic goods from the Philippines. MT-100 transactions, which securitize a portion of cross-border inflows of foreign exchange, are possible in the Philippines because of the country's significant trade exports.

Workers' remittances are very suitable because they are one of the few steady sources of foreign exchange for countries undergoing severe balance-of- payments difficulties. "We have seen evidence that these flows tend to hold up, or in fact, increase, in those times," writes S&P analyst Kevin Kime in the report. "Generally, when things get financially difficult in a country, expatriates usually do not cut their remittances to their families, and sometimes they even increase them to try to relieve the tough financial conditions back home. This is a particularly promising asset stream for Philippine issuers because the country receives a very large flow from the Philippine diaspora working abroad."

He also added that while the Philippines was not experiencing balance-of- payments difficulties, non-investment grade sovereigns are more vulnerable to these types of financial problems. S&P rates the Philippines' foreign currency rating at BB+'.

However, Kime added that it is a drawback that workers remittances are reliant on the credit quality of the bank. This is because some Philippine banks are lower rated, at around B', though Kime says there are ones that could be rated higher. An issuer rated BB' or BBB' is more likely to achieve an investment- grade rating on a securitization.

But Philippine government plans to securitize earnings from the Malampaya gas field may not go ahead because lenders to the country have made objections. The World Bank, The Asian Development Bank and the Japan Bank for International Cooperation said that the securitization plan violates their loan agreements with the Philippine government.

The three lenders said that their loan accords include a negative pledge clause that prevents borrower countries from supporting state borrowings with security.

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